Mukuru Africa (Pty) Ltd v Commissioner for the South African Revenue Service

Mukuru Africa (Pty) Ltd (Mukuru) commenced business on 1 February 2014 as a registered VAT vendor. It provided money-transfer and bureau de change services, as well as mobile phone credit, making both taxable and exempt supplies for VAT purposes. This required apportionment of input VAT under section 17(1) of the Value-Added Tax Act 89 of 1991. On 20 February 2017, Mukuru applied to SARS for approval to use a transaction count (TC) ratio to apportion its mixed-purpose input VAT deductions for tax periods commencing 1 February 2014. On 24 July 2018, SARS approved the TC method but only from 1 March 2016, refusing to approve it for the earlier period from 1 March 2014 to 29 February 2016, citing proviso (iii) to section 17(1). Mukuru objected and eventually appealed to the Tax Court, which dismissed its appeal. The default apportionment method applicable to Mukuru until the July 2018 ruling was the standard turnover-based (STB) method prescribed in Binding General Ruling 16 (BGR16), which was issued by SARS on 25 March 2013 and re-issued on 30 March 2015.

• Whether SARS was precluded by proviso (iii) to section 17(1) of the VAT Act from granting approval for use of the transaction count ratio for the period 1 March 2014 to 29 February 2016
• Whether BGR16 (prescribing the STB method) applied to Mukuru from commencement of its operations
• Whether a vendor can unilaterally disregard a SARS ruling or apply its own apportionment method on grounds that the prescribed method is unfair or unreasonable
• The proper interpretation of the 'condition' in BGR16 relating to fairness and reasonableness
• Whether the July 2018 ruling constituted a change to an existing apportionment method

The appeal was dismissed with costs, including those consequent upon the employment of two counsel.

The binding legal principles established are: (1) BGR16, which prescribed the standard turnover-based (STB) method of apportionment, applied by default to all vendors subject to section 17(1) of the VAT Act who had not obtained an alternative ruling from SARS; (2) the 'condition' in BGR16 relating to fairness and reasonableness does not qualify section 17(1) but rather imposes a requirement to apply to SARS for an alternative ruling if the prescribed method is unfair, unreasonable or inappropriate; (3) vendors cannot unilaterally ignore or disregard SARS rulings or apply their own apportionment methods without SARS approval; (4) when a vendor applies to change from an existing approved apportionment method to an alternative method, proviso (iii) to section 17(1) expressly limits the retrospective application of any approved change to the income tax year during which the application was made; (5) SARS has no power to approve a change of apportionment method retrospectively beyond the limitations set out in proviso (iii) to section 17(1).

The Court noted that even if the 'condition' in BGR16 were to be assumed to be a condition in the true sense, Mukuru did not, at the level of fact, actually claim any unfairness, unreasonableness or inappropriateness regarding the STB method. The Court also observed that the purpose of requiring vendors to apply to the Commissioner for alternative methods is to enable the Commissioner to evaluate whether there is indeed any unfairness, unreasonableness or inappropriateness and, if so, to approve an alternative method. This reflects the administrative framework intended by the legislature for managing VAT apportionment issues.

This case provides important clarification on the operation of section 17(1) of the VAT Act and the limitations on retrospective application of VAT apportionment method changes. It establishes that: (1) binding general rulings issued by SARS apply by default to all vendors falling within their scope until an alternative ruling is obtained; (2) vendors cannot unilaterally disregard SARS rulings even if they consider them unfair or unreasonable, but must apply for alternative rulings; (3) proviso (iii) to section 17(1) strictly limits the retrospective application of changes to apportionment methods to the income tax year in which the application is made; and (4) a change from one approved method (BGR16's STB method) to another (the TC method) is properly characterized as a 'change' in method triggering the limitations in proviso (iii). The case reinforces the principle that tax administration requires certainty and that vendors must comply with SARS rulings through proper administrative channels rather than self-help.